“Some executives at Wall Street’s Credit Suisse First Boston are feeling the fallout from the firm’s rocky $12.4 billion acquisition last year of Donaldson, Lufkin & Jenrette Inc.,” writes Randall Smith in today’s Wall Street Journal.

“In his first major executive reshuffle since becoming CSFB’s chief executive officer in July, John Mack combined the firm’s stock and bond units into a new securities division to be run by former stock chief Brady Dougan. As part of the move, Stephen Hester, the 40-year-old former bond chief, will leave the firm at year end.”

“A factor in Mr. Mack’s decision to oust Mr. Hester, two colleagues say, was the move by CSFB in February to grant huge guaranteed pay packages to about 40 bond traders to keep them at the firm, following similar pay guarantees to retain about 100 top DLJ employees who had threatened to bolt. The paychecks have helped to pinch the profit of CSFB, a unit of Credit Suisse Group. Mr. Hester’s office referred a call to a spokeswoman, who said he was unavailable to comment.”

“More broadly, Mr. Mack’s move is a bid to highlight his priority of fostering ‘firm-wide teamwork’ and ‘a more cohesive culture’ at CSFB, where former CEO Allen Wheat had granted a high level of autonomy to several different businesses. Mr. Mack has vowed to break down the barriers between such different divisions, which he has criticized as ‘silos’. “

“The bond team, led by North American bond chief Jack DiMaio, received pay guarantees totaling roughly $300 million over three years. Although Mr. Wheat took the lead in negotiating the lucrative bond pay packages, which gave Mr. DiMaio alone about $45 million, the crisis reflected poorly on Mr. Hester’s leadership of the bond group, according to people at CSFB. Mr. Mack has vowed to renegotiate such pay packages, and CSFB says such talks are ‘ongoing.'”

“The DLJ acquisition, struck at a rich price near the top of the market, has dragged down CSFB’s earnings this year. For the first half of 2001, CSFB’s profit fell 56% to $337 million from $761 million in the first half of 2000. The results were hurt by DLJ-related costs of $171 million in interest, $153 million in accruals for retention payments to DLJ employees, and $320 million in noncash charges for intangible assets and goodwill.”

“Mr. Dougan, 42 years old, was a longtime associate of Mr. Wheat. Mr. Dougan’s stewardship of the stock unit has been clouded for the past nine months amid a broad regulatory probe of Wall Street’s allocations of initial public-stock offerings. But Mr. Mack believes Mr. Dougan can provide the kind of leadership for the 6,000-employee securities division, the firm’s largest, to make the transition to the kind of ‘one-firm’ culture Mr. Mack envisions, one colleague said.”